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Wednesday, 27 May 2009

Qatar: QIB affiliate EFH projects 34% return on sukuk fund

Qatar Islamic Bank (QIB) and its affiliate European Finance House (EFH), which has launched the $30mn open-ended Global Sukuk Plus fund, have projected 34% returns in the first three years.

“The expected total return is 34% over the first three years of the fund, based on our projections of spreads returning to the average of the last five years,” Mark Watts, EFH head of asset management, told a private gathering on Sunday.

Regulated by the UK’s Financial Services Authority, EFH - which 60% owned by QIB - is a Shariah-compliant financial institution in Europe and a leading force in the growing Islamic banking market.

Although the EFH Global Sukuk Plus Fund is London-based, QIB CEO Salah Jaidah said “it employs its access to the GCC markets to diversify the asset class risk”.

The fund is a weekly dealing mutual fund that is invested predominantly in sukuk markets comprising sovereign, quasi-sovereign and corporate issuers, and looking forward to exceed three-month Libor (London Inter-bank Offered Rate) plus 200 basis point returns over the business cycle.

Value could be added through investment in Shariah-compliant debt of credit investments such as syndicated Murabaha, trade finance and structured investments, EFH said. “Eventually, additional new investment products will be introduced,” EFH said.

The minimum initial subscription to the dollar-denominated fund, which is registered in Luxembourg, is dollar equivalent of 125,000 euros and the minimum additional subscription/redemption is $10,000.

However, there will be an annual management fee of 1%, placement fee of 2% and an estimated administration fee of 0.30% for the fund, whose custodian is Bank of New York Mellon.

The fund, which has low/medium risk, is suitable for investors seeking an enhanced income level and diversification from cash or equity holdings, according to EFH.

There has been a growing amount of interest in Islamic finance and sukuk as a direct result of the problems of the conventional banking system, Watts said.

The advantages with the fund, according to him, were greater liquidity (pricing and availability on weekly basis) and active management (ensuring ongoing credit of both new and existing issues with the aim of minimising or removing the loss from default or losses from credit deterioration).

Other benefits include better diversification (greater number of holdings and broader geographic allocation), wider market access and ease of use.

On the timing of the launch, Jaidah said the negative impact of the global economic crisis has been “filtered” through in the financial market.